Last Wednesday, the Tyler Court of Appeals found that the trial court improperly failed to sever and abate extra-contractual claims from the underinsured motorist (UIM) claims and reversed and remanded the UIM claim for a new trial. The court also reversed a jury award for a breach of the duty of good faith and fair dealing and insurance code violations and rendered a take nothing judgment in favor of the insurer. In American National County Mutual Insurance Company v. Holland, 2019 WL 1272954 (Tex. App. – Tyler March 20, 2019), the insured was involved in automobile accident and notified American National that she intended to recover her damages against the other driver’s insurance and would not be making a PIP claim at that time. Later, her attorney sent a letter to American National requesting permission to settle with the other driver’s insurer should an offer be made. American Nation responded and granted permission to settle “so long as it is within” the other insurer’s $30,000 “policy limits and no payments are claimed under the PIP or UIM coverage.”

After settling with the responsible driver and their insurer, the insured requested payment of her $2,500 PIP and $100,000 UIM coverage limits. The PIP limits were paid but suit was filed alleging breach of contract under the UIM provision and asserting violations of the Texas Insurance Code and other extra-contractual claims. American National filed a motion to sever and abate the extra-contractual claims which was not heard by the trail court until after voir dire and, was then denied by the court. The jury found that the insured suffered $120,000 in damages and also awarded $10,000 in additional damages after finding “knowing” conduct by the insurer in violation of the Texas Insurance Code. This appeal followed.

The Tyler Court of Appeals analyzed Texas law regarding severance and abatement and determined that the submission of the insurer’s motion was timely because Texas law only requires that it be presented “before the time of submission to the jury.” The court then examined whether American National was prejudiced by the assertion of allegations of breach of the duty and good faith dealing and insurance code violations at the same time the jury was asked to consider the insured’s contractual damages. And after examining the evidence, the court determined that “the extra-contractual claims were used to prejudice the jury against American National. As a result, the jury inflated the damages award to ensure Holland received the entirety of her $100,000 in UIM benefits.” 

The Tyler Court of Appeals found that American National timely paid the PIP benefits and that UIM benefits were not owed until the other driver’s legal liability and the insured’s damages were determined. And because liability and damages had yet to be determined, found that American National had not violated its duty of good faith and fair dealing, or violated the insurance code. Accordingly, the court reversed the trial court’s denial of the motion to sever the extra-contractual claims and remanded the contractual claim for a new trial. But the court reversed the judgment on the extra-contractual claims asserting insurance code violations and breach of the duty of good faith and fair dealing and rendered a take nothing judgment in favor of the insurer. 

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